What's going on?
Shares of Swiss investment manager GAM Investments tanked 17% on Tuesday after the company’s third-quarter update revealed investors were taking their cash back en masse.
What does this mean?
In July, a high-flying GAM manager responsible for some $11 billion of assets was suspended following an internal investigation that found his record-keeping and risk management procedures to be sub-par. Investment managers have to regularly show their clients (who potentially include your pension provider) exactly how their cash has been invested – so poor processes are a big deal.
Shortly thereafter, GAM decided to return all $11 billion to its rightful owners – and other investors, likely shaken by the scandal, took a further $5 billion from the pots of cash GAM was investing on their behalf. Since investment managers typically get paid a percentage of all the money they look after, GAM’s future revenues are probably in for a major hit.
Why should I care?
For markets: Money’s on the move.
Investors aren’t cuckoo about leaving cash lying around – so when they withdraw money from one place, it’s probably headed somewhere else. UK rival St James’s Place might be one candidate: it said on Tuesday that the amount of money it looks after was 4% higher than a year ago. And investment manager Fidelity, which recently cut fees on several of its products, probably hopes to entice new investors as rivals see money withdrawn.
The bigger picture: Panama papering over the cracks.
It was a bad day elsewhere in the cantons on Tuesday: Swiss private bank Julius Baer – which used to be part of the same company as GAM – announced plans to shut down its operations in Peru and Panama as part of a broader restructuring of its entire Latin American business. The Panamanian segment was recently thrust into the limelight because of a former employee’s billion-dollar money laundering. The bank wasn’t charged, but several others in Europe have been hit with fines for having inappropriate controls in place.